Promoting & Implementing A High Speed Project

Transcription

1 Promoting & Implementing A High Speed Project (Lessons learnt from experience) Michel LEBOEUF SNCF, Director for Major Projects Paris, France

2 2/30 Strategy consists in optimizing the means in an unchartered context. Money Risks CAPEX Two major outstanding risks OPEX Construction risk Commercial risk Mitigation/risk hedging

3 Construction Risk

4 Construction Risk -Political risk (stop and go) -Dispute over the route -Land acquisition (legal road blocks) -Ever-increasing pressure over environment mitigating measures To be handled by public bodies Not in my backyard garden! -Costs under estimation -Interfaces between infrastructure components -Delays in construction -Quality of the construction over time -Inadequacy with the operating scheme -Insufficient reliability and or availability -Inability to manoeuvre in case of operational disturbance -Lack of capacity for potential growth -Costly for maintenance -Costly for renewals Such legal dispute is better addressed by a Public Authority who can argue about Public Welfare Utility -Dispute during the approval or certification process

5 Construction Risk -Political risk (stop and go) -Dispute over the route -Land acquisition (legal road blocks) -Ever-increasing pressure over environment mitigating measures If the body in charge of the construction is at risk, then it is OK. If not, an incentive must be given through contractual terms. -Costs under estimation -Interfaces between infrastructure components -Delays in construction -Quality of the construction over time -Inadequacy with the operating scheme -Insufficient reliability and/or availability -Inability to manoeuvre in case of operational disturbance -Lack of capacity for potential growth -Costly for maintenance -Costly for renewals To be handled by public bodies To be dealt within the organization -Dispute during the approval or certification process

6 Construction Risk -Political risk (stop and go) -Dispute over the route -Land acquisition (legal road blocks) -Ever-increasing pressure over environment mitigating measures A trade-off between expensive high quality construction and high maintenance costs has to be made. An incentive in reducing the life cycle cost is needed. -Costs under estimation -Interfaces between infrastructure components -Delays in construction -Quality of the construction over time -Inadequacy with the operating scheme -Insufficient reliability and or availability -Inability to manoeuvre in case of operational disturbance -Lack of capacity for potential growth -Costly for maintenance -Costly for renewals To be handled by public bodies To be dealt within the organization Involvement of an operator from the very beginning -Dispute during the approval or certification process

7 Construction Risk -Political risk (stop and go) -Dispute over the route -Land acquisition (legal road blocks) -Ever-increasing pressure over environment mitigating measures The rules and standards have to be established beforehand. A follow-up is necessary. Even on security and safety -Costs under estimation -Interfaces between infrastructure components -Delays in construction -Quality of the construction over time -Inadequacy with the operating scheme -Insufficient reliability and/or availability -Inability to manoeuvre in case of operational disturbance -Lack of capacity for potential growth -Costly for maintenance -Costly for renewals a deal has to be made. -Dispute during the homologation or certification process To be handled by public bodies To be dealt within the organization Involvement of an operator from the very beginning co-operation between administration and owner

8 Purchasing the Rolling Stock

9 Purchasing the Rolling Stock Main issues to address: -Appropriate tender documents -Flexibility over time -Role devoted to the manufacturer Choice of criteria: Fixed/variable cost, Life cycle cost, Capacity, RAMS Evolution of the society and adjustment to traffic requirements: A major issue: telecommunications + Network evolution Just a supplier/ a supplier also in charge of maintenance + issue of homologation -Optimum size of the fleet Traffic seasonality as a key parameter -Optimum size of the market A bet on the traffic forecasts, their future trend and the network development

10 Purshasing the Rolling Stock Main issues to address: Involvement of an operator -Appropriate tender documents -Flexibility over time -Role devoted to the manufacturer Choice of criteria: Fixed/variable cost, Life cycle cost, Capacity, RAMS Evolution of the society and adjustment to traffic requirements: A major issue: telecommunications + Network evolution Just a supplier/ a supplier also in charge of maintenance + issue of homologation -Optimum size of the fleet Traffic seasonality as a key parameter -Optimum size of the market A bet on the traffic forecasts, their future trend And the network development

11 Commercial Risk

12 Commercial Risk Whatever the quality of a consultant or of several consultants is, -Imperfect knowledge of the market -Too pessimistic or optimistic traffic forecast -Wrong evaluation of the sensitivity to prices -Under evaluation of the strength of competitors reactions -Insufficient notoriety -Inadequate market segmentation -Wrong service packaging nothing compares with commitment. Hiring a traffic forecaster ready to share the risk such as an operator -Failure in securing customer loyalty -Lack of flexibility in the service -Inability to adjust the fare policy -Impossibility to adapt the product -Lack of real time reactivity to the change in competition

13 Commercial Risk Just 3 months! -Imperfect knowledge of the market -Too pessimistic or optimistic traffic forecast -Wrong evaluation of the sensitivity to prices Hiring a traffic forecaster ready to share the risk such as an operator -Under evaluation of the strength of competitors reactions -Insufficient notoriety -Inadequate market segmentation -Wrong service packaging Marketing & Timing are of the essence -Failure in securing customer loyalty -Lack of flexibility in the service -Inability to adjust the fare policy -Impossibility to adapt the product -Lack of real time reactivity to the change in competition

14 Commercial Risk -Imperfect knowledge of the market -Too pessimistic or optimistic traffic forecast -Wrong evaluation of the sensitivity to prices Hiring a traffic forecaster ready to share the risk such as an operator -Under evaluation of the strength of competitors reactions -Insufficient notoriety 30 years -Inadequate market segmentation -Wrong service packaging The rolling stock is bought for But the service and the product must be constantly renewed -Failure in securing customer loyalty -Lack of flexibility in the service -Inability to adjust the fare policy -Impossibility to adapt the product -Lack of real time reactivity to the change in competition Marketing & Timing are of the essence Freedom & Flexibility + Real time revenue management

15 15/30 Strategy consists of optimizing the means in an unchartered context. Money Risks CAPEX Two major outstanding risks OPEX Construction risk Commercial risk Mitigation/risk hedging

16 CAPEX: where does the money come from?

17 After having implemented and commisioned several thousands of miles of high speed lines, and having reviewed many similar projects In Europe and Asia, only two very basic facts stand as the very staple in high speed rail projects. Such projects are mainly characterized by their construction cost, their service quality and the market where they will take place... And that s all! There are only two funding sources: the tax payer and the passenger.

18 Such projects are mainly characterized by their construction cost, their service quality and the market where they will take place There are only two funding sources: the tax payer and the passenger. The profitability of the project is linked to its physical features and its market and any legal, organizational and financial scheme will not dramatically change its profitability...

19 In most cases a High Speed Rail project is not profitable enough to be funded solely by the private sector Public money is needed Why should a public body finance a HSR project? Under which provisions will this money be invested?

20 Why should a public body finance a HSR project? -Prevention of climate change -Role of infrastructure in the creation of wealth -Territory management (accessibility) -City management (urban planning) -... Under which provisions will this money be invested? -Socio-economic benefit conditions on the fare system -Purchasing of capacity Ability to use part of the capacity for local services -...

21 Public money is needed There are only two funding sources: the taxpayer on the one hand and the passenger on the other hand The financial engineering work consists of finding the best compromise between these two funding sources Public money Potential Involvement of private parties Conditions Risk sharing assessment

22 Public Private Partnerships

23 Many possibilities: BOT for infrastructure management BOT for train operations Risk on Construction costs Maintenance costs Operations costs Versus Almost fixed revenues + incentives Risk on Construction costs Maintenance costs Operations costs Path Revenues Versus Track access charges + incentives Risk on Passenger traffic Track access charges Versus Passenger revenues Competition

24 Management of stations

25 OPEX: How to optimize them?

26 OPEX list: 1) Rolling stock maintenance and cleaning 2) Infrastructure maintenance 3) Commercialization, marketing, branding, ticket issuing & seat reservation 4) Energy 5) Station operations and maintenance 6) Drivers 7) Conducters (train inspectors) & on-board services 8) Overheads and miscellaneous OPEX drivers: -Travel time -Distance -Speed -Labor costs -Energy costs

27 How much is speed? OPEX increasing with speed: Fixed OPEX: 65%* -Overheads -Commercialization -Communication -Operations in stations -Operations of infrastructure -Maintenance of earthworks -Maintenance of tunnels -Maintenance of viaducts and other structures -Maintenance of security installations -Training of staff -Maintenance of the car bodies -... * As a proxy and varies with the corridor and the country -Energy (most of it) -Track maintenance -Maintenance of the energy supply system (most of it) -Maintenance of the rolling stock (most of it) %* OPEX decreasing with speed: -Driving -Conducting -On board services -Maintenance of the rolling stock (a small part of it) %*

28 How much is speed? What revenues are at stake? Main parameters: -Air competition and road competition -Elasticity of traffic to travel time -Level of fares -Revenue management system

29 Honor the past and Imagine the future

30 Be ambitious

31 Thank you for your attention